Consumer stocks prevail in 2017

Corporate earnings in the 1Q this year recorded their fastest growth in 2 years


The smart money on Bursa Malaysia was in the consumer sector, especially in the fast-moving consumer goods (FMCG) makers.

The strong economic growth numbers throughout the year did not translate to a buoyant market, with the benchmark 30-stock FTSE Bursa Malaysia KLCI (FBM KLCI) up 4.74% year-to-date (YTD).

Corporate earnings in the first quarter (1Q) of 2017 recorded their fastest growth in two years and in the 3Q, they saw generally a positive improvement compared to the 2Q.

Nestlé (M) Bhd

Multinational food manufacturer Nestlé’s share price rose by as much as RM21.26, or 27.24%, to RM99.74 as of yesterday’s closing from RM74.12 in mid-January.

On a 12-month basis, the stock was up RM21.54, or 30.52%, making it the top performer on the local bourse in terms of share price.

The stock rose 12% in the past month, trading at 40.4 times trailing 12-month earnings per share (EPS) and 35 times its estimates for the coming year, Bloomberg data show.

The stock’s surge to a record high comes on the back of it being added to the FBM KLCI list of 30 component stocks.

The decision came following a semi-annual review on Bursa Malaysia’s index series.

Nestlé, the highest-priced stock in Bursa Malaysia, will also be added to the MSCI Global Standard Index.

Often seen as a dividend play, the company has also been reporting strong financial performances throughout the years with its net profit steadily increasing since 2012, growing 26.1% since then to achieve RM637 million in the 2016 financial year (FY16).

Its revenue hit a record high of RM5.06 billion in FY16.

Earlier this month, Nestlé posted a 3Q revenue of RM1.32 billion — up 4.77% year-on-year (YoY) — on stronger domestic and export sales.

Net profit, however, fell 25.5% YoY to RM119.75 million on higher cost pressures.

Most analysts have generally remained positive on the outlook for Nestlé for the rest of the year, as profitability is expected to pick up in the 4Q.

Kenanga Research in its note last week maintained its ‘Market Perform’ call on Nestlé with a target price of RM86.90.

Dutch Lady Milk Industries Bhd

Dutch Lady’s share price had been on an upward trajectory for the past 12 months rising as much as 10.4%, or RM5.76, to hit a 52-week of RM61.60 as of yesterday’s closing.

The stock trades at 29.2 times, trailing 12-month EPS and 30 times its estimates for the coming year.

Dutch Lady is 5.1% above the Bloomberg consensus one-year target price and has returned 14% YTD.

The company foresees the domestic market to remain challenging against a backdrop of weak consumer sentiment, higher material prices and a soft Malaysian ringgit, after recording decreased profitability.

Viewed as a defensive stock by investors and analysts, Dutch Lady’s net profit slipped nearly 20% YoY to RM32.58 million, or 50.9 sen per share, for its 3Q as a result.

Kenanga Research believes demand for the group’s products is sustainable due to its strong brand equity and market leading position for milk products.

At the end of trading session yesterday, Dutch Lady has a market capitalisation of RM3.94 billion.

Fraser & Neave Holdings Bhd (F&N)

FMCG concern F&N’s net profit fell 60% YoY to RM19.65 million in its 4Q ended Sept 30, 2017, on higher cost factors.

Nevertheless, it came out as the top performing stock for the last one year with its stock price now at RM25.92 at yesterday’s close from about RM23 early this year.

For the full year, F&N’s net profit declined 16.1% YoY to RM323.3 million, impacted by higher input and restructuring costs.

Revenue eased 1.6% YoY to RM4.1 billion due to soft consumer sentiment and intense competition faced by the group’s Malaysian operations.

F&N’s robust export revenue, however, helps mitigate impact from lower domestic revenue.

It recorded a 26% growth in export from its Malaysian operations and saw a 30% growth in export volume to Africa and the Middle East, which is its halal core market.

F&N trades at 29.4 times, trailing 12-month EPS and 21 times its estimates for the coming year.

According to the firm’s filing to the exchange, it is on track to achieve its target of half a billion ringgit worth of exports from its Malaysian operations by 2020, after raking in RM300 million in export sales in its last financial years.

Panasonic Manufacturing Malaysia Bhd

Despite recording less than stellar earnings for its 2Q ended Sept 30, Panasonic still was the third best-performing large-cap stock in terms of share price gain.

The company’s net profit fell 23% YoY to RM23.64 million, while revenue also declined by 5.09% to RM277.53 million in 2Q.

In the first half of FY18, its net profit fell 8.49% YoY to RM63.22 million, despite revenue growing 2.57% YoY to RM605.38 million.

Panasonic said its operations remain affected by the ongoing tight labour market and rising raw material prices.

The group has a market capitalisation of RM2.42 billion and YTD, the counter has appreciated by 31% to RM39 from RM30.40 on Jan 3, 2017.

Panasonic trades at 19.6 times, trailing 12-month EPS and 17 times its estimates for the coming year.